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KKBOX – How a music streaming service can actually make money
2015 was both a good and a bad year for Spotify. Revenues at the music streaming service soared by 80% to $1.95 billion, while paying users hit 30 million. The company’s annual losses, however, also spiraled to $173 million. During the course of its eight-year lifespan, Spotify has never made a profit, leading analysts to question the viability of its freemium business model. Asia’s largest music streaming service, KKBOX, on the other hand, has turned a profit since 2008. The company was established in Taiwan in 2004, and now operates in Japan, Hong Kong, Singapore, Malaysia and Thailand. Lower royalties, endemic to Asian markets, have accelerated KKBox’s road to financial stability. But the service’s 10 million users also have to subscribe to enjoy the 25 million tunes available, a business model that is profitable before scaling into infinity.
“I am a risk taker by nature,” pronounced Chris Lin, the CEO of KKBOX, in a 2013 interview with Commonwealth Magazine. Lin was a late bloomer. Poor results at school in Taiwan compelled his parents to send the 14-year-old boy to live with an aunt in New York. After studying manufacturing engineering at Boston University, he obtained a master’s degree in operations research at Stanford. It was the mid-1990s, college dorms were abuzz with the kind of ideas that earned Stanford its reputation as the cradle of Silicon Valley. “It was hard not to be influenced by that heady entrepreneurial atmosphere.” Returning to Taiwan, Lin executed his first coup by joining clubbing together with software engineers to develop the KKman browser, which supported both Web browsing and the hugely popular BBCode bulletin board. When broadband came along, however, the age of the bulletin board drew to a close.
In 2004, Lin spotted his second opportunity. Everyone was online and downloading pirated music. A full four years before the advent of Spotify, Lin harbored a vision for a subscription based streaming platform. In an interview with the Financial Times dating from 2013, Lin explained the concept behind KKBox’s business model: ‘Tap water is free - why would you pay for bottled water in a convenience store? We believed people would pay for convenience and quality.’ By negotiating royalties with the major records, Lin ensured that his service was legal from the very beginning. Initially, growth was slow. But when the iPhone and 3G came to Taiwan in 2009, the number of users exploded.
In 2011, KDDI Corporation, Japan’s second largest telecommunications company acquired 76% of KKBOX shares. KKBox raised an additional $104 million from Singapore GIC in 2014. The funds were put towards refining the platform technology and a push for expansion in Southeast Asia. Peripheral services began to appear that differentiated the company from other services, such as Spotify. “We’re not selling music,” Lin told the FT, “we’re selling…the sense of togetherness and privilege of being close to artists.” KKBox now publishes a free online music magazine (with a staff of over 30 editors) and hosts one of Asia’s most reputed annual music awards. Other accoutrements include integrated karaoke lyrics, in-app chat, and a ‘listen-with’ function that lets users listen in on the same tracks as their friends and favorite artists.
In retrospect, it is no surprise that Asia’s most successful music streaming service should have originated in Taiwan. The country has dominated Asia’s popular music market for decades. Even today, long after Mainland China has loosened controls on its domestic music industry, Taiwan is still the main conservatory for musical talent, while seasoned bands like May Day or stars like Jolin Tsai continue to flog albums by the millions. KKBox, however, has shown itself particularly astute in negotiations with international as well as local music labels, securing a huge catalogue of music. “Globally, only we and Apple are making money,” Lin told Commonwealth Magazine.
Though KKBox entered the music streaming market early, the announcement of its new line of operations arrives decidedly late. At the beginning of July, the company launched KKTV, an Over-the-Top (OTT) service that broadcasts over 5,000 Japanese, Korean, and Taiwanese dramas on demand. By the end of year, KKTV hopes to offer viewers a choice of over 10,000 episodes. Speaking with BusinessNext, KKTV’s sales manger Shouyu Song described the new branch, which currently has a team of only 20, as ‘a startup under the KKBOX banner’. “We’re late comers in this market, so we have to be very clear about how we position ourselves. For the immediate future, KKTV will focus on ‘content that Taiwanese viewers are mad about.”
KKTV has inherited the KKBox business model, requiring users to subscribe to access content. And as with the music streaming service, successful collaboration with content providers will be key to winning over the viewers. One of KKTV’s first partners is South Korea’s largest entertainment group, CJ E&M. KKTV will broadcast some of the group’s most popular shows, such as “Signal,” and “The Vampire Detective.” KKBox’s Japanese shareholder, KDDI, has weighed in to source content from Tokyo television, Asahi, Fuji, and TBS. For homegrown productions, a deal has been struck with Taiwan’s Videoland channel. Initially, KKTV will concentrate on accumulating viewers in Taiwan. But Shouyu Song is confident that the international expansion of KKBOX is replicable: “Within five years, we’ll have broken out of Taiwan.”
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